The risk off environment in the markets today supported safe haven currencies such as the yen and the Swiss Franc, while bond yields from developed countries fell.
Risk aversion caused bond yields to decline as investors began to become nervous about the outcome of the UK’s EU referendum which is in less than two weeks. Caution also appears to be taking hold ahead of another risk event – the Federal Reserve policy meeting next week.
As recent polls showed Brexit risks have risen, the U.K. 10-year gilt yield fell to a record low on Thursday, while sterling tumbled to a 7-week low of $1.4311 today. Better-than-expected UK construction output data for April did little to offset Brexit concerns.
The euro did not benefit from risk aversion as the euro-cross pairs like euro/yen and euro/swissie weighed on the single currency, which fell against the dollar to $1.1280. European data today showed the final German CPI data for May was unchanged. This had little impact on the euro.
European equity markets fell around 2% and German 10-year bund yields fell to record lows, tumbling towards 0%. Japanese 10-year yields also hit record lows earlier today to fall further into negative territory at minus 0.15%. The US 10-year Treasury yield was trading around the lows of the year at 1.66%.
The Swiss franc gained from its safe haven appeal and has had one of its best weeks since the Swiss National Bank lifted the currency cap in January 2015. USDCHF traded around 0.9640 today.
Data out of the North American session included labour market data out of Canada, which showed the country’s unemployment rate fell to a 10-month low of 6.9% in May after the economy added a bigger-than-expected number of jobs. The data helped strengthen the loonie and consequently USDCAD fell to $1.2659 from $1.2752 immediately after the news.
In emerging market news, the central bank of Russia cut interest rates by half a percentage point for the first time in 10 months. The cut to 10.5% was in line with expectations. The bank’s more optimistic outlook on the Russian economy helped the Russian rouble pare losses it made against the dollar ahead of the rate announcement. USDRUB last traded around 64.50 in late European session.
In commodities, oil prices retreated to below $50 a barrel due to a stronger dollar. Gold on the other benefited from safe haven demand and rose to fresh 3-week highs of $1278.03.
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